A flat, though still hefty, year for Houston execs' pay

A flat, though still hefty, year for payHouston business leaders didn’t make quite as much as they did the year before, but their peers nationwide did worse

TOM FOWLER, HOUSTON CHRONICLE

Published 5:30 am, Sunday, July 26, 2009

Oil prices gave and the recession took away when it came to Houston executives' 2008 pay packages, which didn't change much from the year before, according to the Houston Chronicle's annual survey of the city's 100 highest paid.

Median pay for executives of publicly traded companies was up about one-half of one percent, according to data compiled by Longnecker & Associates. That compares favorably to the 3.4 percent recession-induced drop seen in a national survey of executives by the Hay Group.

The relatively flat Houston numbers reflect the combination of a small drop in stock-based awards — which were made early last year when many local energy firms were seeing high stock prices as the prices of oil and natural gas rose — with a 9 percent drop in bonuses, a reflection of the recession's effect on year-end revenue and profit goals.

“It's usually a question of if executive pay was riding the commodity price bubble or reflecting true performance” said Josh Henke, managing director at Longnecker. “In this case it did both.”

Nabors Industries Chairman and CEO Eugene Isenberg returned to his familiar place in the No. 1 spot with a pay package worth $59.8 million, including a $58.7 million bonus. The head of the largest onshore oil and gas drilling firm has been in the top three for the past six years, including three times as No. 1, thanks to a 20-year-old bonus formula that pays him a percentage of the company's cash flow.

Robert May, the former CEO for power plant operator Calpine Corp., ranked No. 2 with a $35.1 million package, much of it bonuses related to successfully guiding the company out of bankruptcy in 2008.

Rounding out the top five were ConocoPhillips Chairman and CEO James Mulva with $29.4 million, Plains Exploration Chairman and CEO James Flores with $25.6 million and EOG Resources Chairman and CEO Mark Papa with $23.4 million.

Also in the top 10 was Jon Marshall, a former president and chief operating officer of Transocean, who ranked No. 8 thanks to a number of payments made in relation to the company takeover of Global SantaFe, where he was previously the CEO.

No women in top 100

No women made this year's top 100. The first woman comes in at No. 126 — Julie Robertson, executive vice president and corporate secretary for Noble Corp., with a package worth $3.1 million.

Pay surveys are not popular with executives, in large part because the total compensation number can be misleading.

Numbers fluctuate

The majority of pay packages are in the form of stock or stock options, the values of which fluctuate daily as companies' stock prices wax and wane.

The numbers reported in the regulatory filings used for the survey represent a snapshot — how much the securities were worth on the day they were added to an executive's pay package.

In many cases the difference between the snapshot and current price can be huge. This is particularly true now, as stock prices have fallen steeply from their levels in early in 2008 as oil and gas soared toward record high prices.

For example, Plains Exploration CEO Flores had the largest stock award grant last year, worth $22.5 million, according to the company proxy statement. (It's listed on the Chronicle's chart under long-term incentive.)

But the fair-market value of that stock now is closer to $4 million, based on the current company stock price.

“The accounting numbers can always be skewed, but I don't know if we've ever seen it this skewed before,” said Brent Longnecker, chairman of Longnecker & Associates. “It's hiding the fact that executives may be more in alignment with the shareholders this year than it appears.”

Despite the downturn, plenty of executives still got sizable incentive payments, some based on specific criteria, others on goals that were less clear.

Few positive returns

Only two companies in the top 100 had positive shareholder returns in 2008, Southwestern Energy and Waste Management.

Southwestern CEO Harold Korell ranked 32nd in pay with a $6.8 million package, including $3 million in cash payments tied to a complicated series of specific performance goals.

David Steiner of Waste Management was 54th with a $5.6 million package, including $3.3 million in performance share units — which he can turn into company stock or cash. That grant was based on the company hitting two specific targets: income from operations as a percentage of revenue of at least 16.1 percent and income from operations of at least $3.3 million excluding some items.

Plains Exploration's Flores received his hefty stock payments because of a number of moves he made to help weather the storm, including “the purchase of extremely beneficial hedges and asset sales utilized to reduce debt,” according to the company's proxy.

Not all the big payments were based on a single year's performance.

No. 15 Chad Deaton, CEO of Baker Hughes, received one of the larger cash incentive payments, $6.3 million, but $4.8 million was tied to a three-year incentive program.

Cautious directors

Moving forward, company directors are being cautious about the size of the equity payouts they make to executives given stock price drops, said Eric Nielsen, a managing director at executive recruiting firm Korn Ferry in Houston.

“The perception is shares are cheap now,” Nielsen said. “So boards are carefully balancing the interests of the shareholders with those of the employees, leadership team and the myriad of external stakeholders.”